WASHINGTON, April 12 (Reuters) – Monthly US consumer prices rose by the most in 16-1/2 years in March, as Russia’s war against Ukraine boosted the cost of gasoline to record levels, bolstering the case for a 50 percent rate hike. basis point. from the Federal Reserve next month.
The price increase reported by the Labor Department on Tuesday culminated in annual inflation rising at the fastest pace since the end of 1981. But there were some glimmers of hope, with monthly core price pressures rising moderately as auto prices calmed. Economists also believe overall inflation has peaked.
“The Fed will take some relief from today’s report, but it still has a lot of work to do to restore price stability,” said Sal Gutierre, chief economist at BMO Capital Markets in Toronto.
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The CPI accelerated 1.2% last month, the biggest monthly gain since September 2005. The CPI advanced 0.8% in February. An 18.3% increase in gasoline prices accounted for more than half of the increase in the CPI.
Gasoline prices at the pump on average rose to an all-time high of $4.33 a gallon in March, according to AAA.
Russia is the second largest exporter of crude oil in the world. The United States has banned imports of Russian oil, liquefied natural gas and coal as part of a raft of sanctions against Moscow for its invasion of Ukraine.
In addition to rising gasoline prices, the Russo-Ukrainian war, now in its second month, has led to a global rise in food prices as Russia and Ukraine are major exporters of commodities such as wheat and sunflower oil.
Outside of gasoline, the increase in inflation was across the board. Food prices rose 1.0%, with the cost of food consumed at home up 1.5% amid strong gains across all categories. But the cost of food consumed away from home was moderate with a 0.7% rise in full-service meals partially offset by a 0.2% decline in limited-service meals, the first decline since October 2018.
In the twelve months through March, the CPI accelerated 8.5%. This was the biggest year-over-year gain since December 1981 and was followed by a 7.9% rise in February. It was the sixth consecutive month of annual CPI readings north of 6%.
The increase in inflation last month was in line with economists’ expectations.
The strong CPI readings followed last month’s news that the unemployment rate fell to a two-year low of 3.6% in March. A tight labor market is fueling wage inflation.
The US central bank in March raised the policy interest rate by 25 basis points, the first increase in more than three years. The minutes of the policy meeting published last Wednesday appear to have paved the way for significant interest rate increases in the future.
Rising inflation and the Fed’s hawkish stance have led the bond market to fear a US recession, although most economists expect the expansion to continue.
US stocks opened higher. The dollar settled against a basket of currencies. US Treasury yields fell.
Monthly core CPI slows
Economists believe that March could mark the peak of the annual CPI rate, but warn that inflation will remain well above the Federal Reserve’s target of at least 2% through 2023.
Gasoline prices have fallen from record lows, but are still well above $4 per gallon. Last year’s high inflation readings will also begin to fall from the CPI calculation.
“March could be the peak of this cycle’s annual inflation measures,” said Ben Ayers, chief economist at Nationwide in Columbus, Ohio. “However, given the high starting point and the potential for further delays in the recovery of supply chains, inflation readings should remain very high through 2022 and into 2023.”
The second consecutive monthly decline in used car and truck prices resulted in a moderate monthly reading of core inflation. It also eased prices for new cars. Excluding the volatile food and energy components, the CPI rose 0.3% after rising 0.5% in February.
The 0.5% increase in shelter costs accounted for nearly two-thirds of the rise in the so-called core consumer price index. A major measure of rents, the owners’ equivalent rent for the main residence, advanced 0.4%. The cost of accommodation in hotels and motels has also increased significantly.
Airfares increased by 10.7%. Home furnishings also cost more, as does insurance for cars, clothing, entertainment and personal care. The cost of health care rose 0.5%, with a significant increase in physician visits and hospital services. But prescription drug prices fell 0.2%.
Core CPI rose 6.5% in the twelve months through March, the largest rise since August 1982, after rising 6.4% in February.
Lockdowns in China are seen to contain a resurgence of COVID-19 infections, further straining global supply chains, which could keep commodity prices higher. Separately, higher home rents are also expected to keep core inflation hot.
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(Reporting by Lucia Mutikani) Editing by Chizu Nomiyama and Andrea Ricci
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